In late December RC2 Corp., the Oak Brook, Illinois-based maker of Thomas & Friends Wood Railway toys, agreed to pay a $1.25 million civil penalty for allegedly violating a federal lead paint ban in 2007. The violations resulted in a major crackdown by federal authorities on lead paint and coatings, which pose a risk of lead poisoning and other health problems in children.
But the new regulations, which have failed to prevent subsequent health scares in toys, may be driving smaller manufacturers offshore – the very companies needed to spark a sustainable economic recovery.
Upon the announcement of the RC2 Corp. settlement, U.S. Consumer Product Safety Commission (CPSC) chairman Inez Tenenbaum noted, “The highly publicized recall of Thomas & Friends Wooden Railway toys was a catalyst for Congressional action aimed at strengthening CPSC and making the lead-in-paint limits under federal law even stricter.” One of the main results was passage the Consumer Protection Safety Improvement Act of 2008, which focused on getting unacceptable levels of lead out of products for children.
But the increase in federal oversight is not creating a rosy regulatory future. On the one hand, the 2008 law places a regressive burden on businesses to show compliance with acceptable lead levels. As reported in Popular Mechanics, hardly a magazine noted for its advocacy of partisan policy, “In order to prove that a toy is lead-free, toymakers must spend $300 to $4,000 per product in tests — an amount of little consequence to big companies but a major cost for small-batch, independent toymakers.” In policy debates we are often reminded, and rightly so, that the poor are those who are most affected adversely by fluctuations in costs and income. It’s a truism that those with smaller budgets and smaller amounts of discretionary money are less able to adapt to unforeseen or novel impositions of costs, and this reality has important moral consequences for how we evaluate public policy.
And the truism applies not only in the cases of poor individuals, or families at or below the poverty line, but for small businesses as well. Where larger corporations can often afford to hire compliance officers or outsource expensive testing, the options for smaller business are much more limited. In some cases, it might be easier to move a business overseas than to comply with increasingly onerous and haphazard regulatory requirements. This is precisely what Ian Smith, president of OSET dirt bikes, decided to do when faced with the prospect of costly testing. “Why not go where we’re wanted?” wondered Smith as he plans to shift his business from Denver, Colorado, to England.
This raises the further concern that as American regulatory law becomes more out of step with global practice, companies and jobs will shift overseas. On the one hand this drives out some of the most talented and promising entrepreneurs in America, culling businesses that contribute to a diverse and vibrant economic landscape. Small businesses, which are key drivers in economic growth, can ill afford to be lost in the midst of an already stumbling economy.
On the other hand, it points out the limits of federal regulations, which often do not directly, or even indirectly, control what materials are used to make products for American consumers. When Chinese toymakers were faced with heightened scrutiny after 2007, many sought cheap alternatives to lead. A recent Associated Press investigation into the makeup of children’s accessories shows definitively that “some Chinese manufacturers have been substituting the more dangerous heavy metal cadmium” for lead.
All of these concerns place an enormous, and perhaps unattainable, responsibility on the CPSC. On the imposition of huge potential costs for small toymakers, a CPSC spokesperson assures us, “We want to find practical ways to keep small businesses open.” The CPSC has also decided that the deadline for certification and testing for lead products won’t pass until next month. But assurances of individual flexibility and postponements of arbitrary deadlines do little to provide the kind of stable, predictable, and realistic requirements that businesses require to flourish and succeed. And as for the pending cadmium fiasco, the CPSC says it is “opening an investigation” and is going to “take action as quickly as possible to protect the safety of children.”
More important than quick action by the CPSC or Congress, though, is thoughtful and reflective action that will not further alienate small businesses or simply incentivize producers to include a different, potentially more dangerous, toxin in toys.